Look under the hood, the same applies to canmaking machines

Look under the hood

Occasionally some of our Chinese clients claimed that prices of our products that we deal with appeared to be uncompetitive. I know our prices are competitive, otherwise, we won’t be in business and doing so well for over 20 years.  China is a highly competitive market as there are a lot of suppliers and agents setting up offices there and are trying to undercut each other so as to survive.

“Look under the hood”. It is the message that I have been trying to convey to those clients in question. Buying parts for canmaking machines are no different from buying parts for a car. Often times, the clients in question approached us with parts involving Original Equipment Manufacturers (OEM), such as Stolle, Belvac etc. The serial numbers provided by them mostly are those of the OEM. Therefore, we have to go to such OEM for quoting the relevant parts. OEM prices are understandably more expensive. It is like going to a Toyota dealership to buy a carburetor, an air filter, or spark plugs or a set of tires when it comes to maintenance of a Toyota car.

However, if one looks into each of the OEM machines, i.e. look under the hood, one is likely to find that a lot of the parts are not manufactured by OEM. For instance, you may find a ABC Motor in an OEM machine. If a client could provide the serial number for such motor to us, we can go to ABC Motor and ask for a quote for that particular motor. I am sure we can provide the clients with very competitive prices for that motor, and likewise for other parts. At the end of the day it will mean tremendous savings to the clients.

AMRO’s edges

In this respect, AMRO’s competitive edges are:

1      We are able to obtain competitive prices for parts of some of the US small manufacturers. As we are a leading provider of US parts we are able to get bigger discounts than our competitors  from those manufacturers due to our long dealings and relationship with them.

2.     We  have our own warehouse in the US. We are able to consolidate orders of the various manufacturers into one shipment at our warehouse. Therefore, the clients can save freight charges and administration costs. Some of my Chinese clients incline to deal with the OEM or their agents because they do not want to deal with too many manufacturers. However, this problem can be solved by dealing with AMRO, one source for many manufacturers. Further. those clients by going to the OEM or their agents they are sometimes paying more for the parts then they realize, as explained above.

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China banks are becoming world’s financial powerhouse

Readers of my blog, although not too many of them, know that I from time to time criticized my Chinese clients. In my last blog, I criticized the un- professionalism of a China bank. It seems that I am a China basher. However, as a matter of fact I am not. I am just using this blog to air my grievances. It is interesting to note that China bashing usually attracts more blog readers than otherwise. If it helps my blog, I don’t mind being seen as one of them. Further, I know the (Mainland) Chinese would not read my blog simply due to the fact all foreign social nets, such as WordPress, Twitter, Facebook, Google Blog and others, are blocked  in China. I can criticise my Chinese clients all I want and I won’t lose their businesses. The same cannot be said about my US principal. If I criticise them,  they may read it (although I doubt it) I may just as well kiss my job good-bye.

Talking about China Banks, I would like to bring up an interesting question. Recently, I came across a Chinese client who intended to pay for the goods ordered from us by a letter of credit (LC). The LC would be opened by one of the three largest state banks in China. When I mention “a China Bank” hereinbelow, I am referring to one of such banks.  My question is would you as a seller accept a LC opened by a China bank?. Personally, I would. A LC is essentially a bank guarantee. Therefore, the issue is whether a China bank is an acceptable risk. Do you know that currently the 3 largest banks in the world by market capitalisation are the 3 largest in China, namely Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC), and in that order? It is the reason this blog is entitled “China Banks are becoming the world’s financial powerhouse”. I have so much confidence in them that over 7o% of my stock portfolio are invested in ICBC and BOC and I am sitting on very nice profits on these two stocks (see I am a China fan and not a basher).

Being one of the largest banks in the world and being a state bank, I can’t see how a China Bank could renege or default on a LC. Therefore my answer to the above question as to whether one could accept such LC is an undeniable YES.  What is your view?

A must for canmakers doing business with China: know the best selling drink in China, Wanglaoji 王老吉(Part 1)

wangloji can2Guess which is the best selling drink in China? Coke? Pepsi? No, it is Wangloji 王老吉 (WLJ), which is little known to other peoples outside of China other than the Chinese communities. Look at the photo on the  left, one wonders what is inside this ordinarily looking can (I am being nice) and why it is so popular in China. WLJ is a kind of traditional Chinese herbal tea. According to a reliable source sales  of canned WLJ amounted to RMB2.5 billion or US$365 million in 2008, which surpassed sales of Coca Cola in the country.

What is relevant to the canmaking industry is that the canned WLJ emerged from its obscurity only in or about 2004, when the company first started to sell the drink in cans. At that time, WLJ was sold only in Tetra paks. The China WLJ, which holds the license, thought that WLJ in cans would have no market at all and  granted the use of the license to a Hong Kong company, which is related through history, at a low price for 20 years. Herbal teas in cans were then considered a revolutionary idea.

The type of cans currently used by WLJ belongs to the kind known as 3 piece steel can. The company is taking  another  innovative move this year by changing the cans to 2 piece aluminum. It is said  that the state owned corporation, COFCO, is building a huge plant in Wuhan for producing 2 piece cans mainly to cope with WLJ’s demands.

I am not an expert on canmaking technology. Nevertheless, I consider WLJ’s switching to 2 piece cans a bold move.  Some of the experts in the idnustry have doubts that herbal teas are chemically compatible with aluminum, the metal which most 2 piece cans are made of. Further, WLJ, being a non-carbonated drink, is said to be not suitable for a 2 piece can which relies on the gas of the liquid inside to support the soft aluminium wall and keep it in shape. I think WLJ will face a lot of challenges on the technical front for switching over to 2 piece cans. That said, I was told that WJL by doing so it could save about 15% of the costs for each can it produces and on the whole the company could save hundred millions of dollars in costs each year. It will save on materials costs as aluminium is cheaper than steel and also on operating costs as the former is a lighter material, hence, cheaper transportation and storing costs. I was told that WLJ’s competitor, Red Bull, which is in a similiar situtaion, is watching the related developments closely. If WLJ’s move is proven to be successful, Red Bull, will likely to follow suit.

That is enough on the tecnical aspect or I should say that is all I  know. As a matter of fact, the history of WLJ is quite intriguing and so is the drink. I will talk more on these two subjects in the subsequent blog.